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Home Waranties 101

Have you ever heard of a home warranty? I’m sure that when you’ve purchased any large electronic items, such as a TV, you’ve been offered and extended warranty. Well, a home warranty is the same type of extended warranty for your home.

Here’s how a home warranty works. The policy usually costs between $400 – $500 for a one year warranty. And yes, it can be renewed. The warranty will typically cover all appliances, such as refrigerator, stove, dishwasher, washer, dryer and microwave. Also under coverage will be the hot water heater and the heating and cooling systems. During the covered period, should any of the covered items cease to function properly, simply call the warranty company. You will be responsible for a small copay, which is usually under $100. They will dispatch a technician, who will either repair or replace the item, at the warranty company’s discretion.

For many of the covered items, it may not be cost effective to have an extended warranty at this cost. Face it – you can get a counter top microwave for under $100, or a built in microwave for under $200. But a good refrigerator can easily be over $2000. And if the heating or air conditioning systems fails? It’s even more.

It’s an insurance policy. You can reduce your financial exposure by paying the premium. But there’s a reason electronics stores push the extended warranty as hard as they do. And the reason is that it’s a money maker for them. Will they need to pay for covered repairs? Yes, of course they will. But they base the rates upon historical data that tells them how much they need to charge to, on average, return the desired financial earnings they need to survive in this business.

If you are buying a home, and it has older appliances and / or an aged heating and cooling system, you may want to purchase a warranty. If your appliances are newer and are under the manufacturers warranty, a policy that covers on the heating and cooling is available. Also, through the utility companies you can often purchase a service contract.